Artwork by Michael DiMilo
By Geoff Carter
“It’s déjà vu all over again.”
–Yogi Berra
I don’t know why anyone is surprised at the Silicon Valley Bank failure. This has all happened before—and more than once. Most recently before this latest debacle, reckless lending practices and artificially inflated housing prices led to the burst housing bubble of 2008, a disaster that nearly drove us into a worldwide financial holocaust. The savings and loan crisis of the 1980s was the result of “…excessive lending, speculation, and risk-taking driven by the moral hazard created by deregulation and taxpayer bailout guarantees” (Savings and Loan Crisis:What happened and Afterward: Investopeida), which even to a layman like myself, sounds very similar to what happened only last week—nearly fifty years later.
And, of course, who can forget the Great Depression? After the boom of the twenties (mostly based on speculative investments) the stock market crashed in October 1929, causing millions to lose their savings, thousands of businesses to fail, and unemployment to skyrocket. The rush to sell overinflated stocks (sound familiar?) resulted in the great collapse. Of course, there were many other economic crises interspersed between these events, including the dot.com recession of the late 1990s and the oil crisis of the 1970s. Although other factors like government deregulation and decline in the money supply contributed to these collapses, one common thread runs through most (with the exception of the COVID-19 recession) of these crises: greed.
We live in a time of profound and immediate change. Knowledge and technology are surging in leaps and bounds almost too quickly for the general population (particularly those over 60) to keep up with. The entire extent of medical knowledge doubles every seventy-three days. Cellphone apps that can read heart rate, blood pressure, and glucose levels are proliferating the market and are now available to every consumer. AI text generators like ChatGPT have reached a point where they can write nearly as well (or better) than a typical high-school senior. Genomics, green hydrogen, and 3-D printing are only the tip of the iceberg in this volcanic surge of technological advancement. Yet for all these wonderful leaps forward in knowledge, technology, and engineering, our society finds itself experiencing the same financial disaster over and over and over
Last week, when the Silicon Valley Bank failed after a run by depositors, it brought back memories of the 2008 housing bubble crisis, although—thankfully, the repercussions of its failure do not seem to be as profound and far-reaching as the effects of that first debacle which resulted in the failure of the Lehman Brothers and nearly precipitated a cascade of world-wide credit failures. Only the Emergency Economic Stabilization Act of 2008 (the bank bailout) kept more financial institutions from failing. So, when Wall Street screwed up, it was the American taxpayer that came to the rescue. Again.
The 2008 financial crisis had a number of causes, including predatory lending practices aimed at minority populations, the repeal of various aspects of the Glass-Stengall Act—which allowed commingling of high and low-risk lending practices—and derivatives of mortgage-backed securities. As irresponsible lenders approved mortgages to nearly anyone who applied, home prices ballooned beyond any measure of their true value—until the balloon burst.
The same financial institutions that ended up being bailed out by Main Street America had taken huge risks in order to increase their profit margin. In short, the 2008 crisis was largely a product of incessant and insatiable greed. Even though over eight million people lost their jobs and homes and savings, not one Wall Street executive was prosecuted for fraud, and were—in fact, bailed out by the very people they swindled.
There is to be no bailout of the big guys this time. While ensuring that depositors would be repaid in full, the Biden administration decided not to use taxpayer money, but instead go into the FDIC funds. This time, the bankers would not be protected. As to why the SVB crisis happened, some maintain that the Federal Reserve’s interest rate hikes caused the erosion of some SVB assets. But some think otherwise.
“With regard to who’s to blame here, I think that the greed and avarice that has long been present in Silicon Valley has come home to roost,” Keith Fitz-Gerald, a trader and principal of the Fitz-Gerald Group, told CNBC’s Capital Connection on Monday (CNBC). Fitz-Gerald also bemoaned the negligence of regulators and auditors—in short, the entire system.
As Yogi Berra would say, it’s déjà vu all over again. From 1929 to 1980 to 2008 to yesterday, this pattern of our banking systems and financial institutions stumbling, failing—and ruining millions of lives in the bargain—recurs over and over again. Why? With our experience, knowledge, government regulations, and advanced technology, why aren’t we able to prevent these disasters? It seems well within our capabilities to do so, so why don’t we?
History repeats, but while the forces of history are powerful, they are not nearly as powerful as human nature, particularly the forces of avarice, gluttony, and selfishness, elements of the human condition that seem by their very nature to end up in the driver’s seat of human destiny. Who else but the most avaricious among us ends up on Wall Street in a position to manipulate the system and swindle millions—and to get away with it? While many of those in public service are primarily concerned with improving the public good, there are a significant number who are in office primarily to garner power and influence and—as a happy byproduct, money. These are the guys who make the rules, bend the rules, or ignore the rules. They’re also the guys who decide who gets punished—or not.
The rules instituting the Securities and Exchange Commission after the Great Depression work; many of the regulations meant to curb another housing bubble work, but as long as there are people whose main priority of self-gain and greed overrides the general welfare of our citizens, these incidents will keep repeating. Human nature, in these cases, seems immutable. And unstoppable.
We haven’t seemed to have learned the lessons of fascism, either; if they were ever learned, they seem to have been forgotten. Kim Jong-Un, Benjamin Netanyahu, Vladimir Putin, and Viktor Orban rule—or attempting to rule—their countries with iron fists. Putin seems bent on forging an empire through oppression and conquest. Although his invasion of Ukraine has stalled, he seems determined to conquer the country through the slaughter of its civilian population. Back home, ex-president Donald Trump allied himself with Putin and Jong-Un during his administration. He even took a page from the autocratic cookbook by attempting to grab power through an armed insurrection against our democracy.
Of course, for every Trump or Taylor Green or Boebert, we have a Biden, a Liz Cheney, and an Ocasio-Cortez. Those who revere money and power don’t have to be in control; we don’t have to ride on their psychotically narcissistic roller coasters. We are smarter, more technologically advanced, and wealthier than we have ever been. We can do better.
Every cycle can be broken. At this point, only a few of those who have precipitated these crises have been punished—not only fined, but jailed. If we treat them like the common criminals and shysters they are and punish them according to the letter of the law; if we bail out the Americans victimized by the perpetrators instead of the criminals themselves, then and only then might we gain some justice. And peace.
Sources
- https://www.thebalancemoney.com/the-history-of-recessions-in-the-united-states-3306011
- https://stefanini.com/en/insights/news/top-10-emerging-technology-trends-to-leverage-in-2021?gclid=Cj0KCQjwt_qgBhDFARIsABcDjOdK9IOSe1JkvywyZ1q3xDH1XKp1x5h8V80Pd2f-9ZrCCuJA8YIYTlAaAsNCEALw_wcB
- https://www.nytimes.com/2023/03/10/business/silicon-valley-bank-stock.html
- https://en.wikipedia.org/wiki/2007–2008_financial_crisis
- https://www.cnbc.com/2023/03/13/svb-collapse-silicon-valleys-greed-and-avarice-to-blame-trader-says.html